A large part of the cost of supplying electrical energy to a premises is related to the peak demand for energy by that premises. Infrastructure sufficient to meet the peak demand must be provided, even though it will be underutilized at non-peak demand times, which will be the majority of the time.
Accordingly, many commercial, government and industrial electricity consumers are charged for electricity in a manner which seeks to compensate the energy supplier for this requirement. The consumer is charged in two parts; a usage charge per kWh of energy consumed, and a demand charge which is related to the maximum instantaneous wattage supplied to the premises in a given billing period. In some cases, the demand charge may be the greater part, or even the whole of the charge levied for a billing period.